Will prices skyrocket if rates stay low for two years? Yes, in those places where job and wage growth outside the housing industry is strong.
I just watched a video from Bloomberg that made some great predictions, fanning the flames of the hot-market mentality (and reality, in some major metro markets), but not directly answering the real problem with the predictions. In this case, the moderator did ask the question, but got only half the answer.
I am optimistic about these predictions, but the headline "Prices to Skyrocket" doesn't address the real problem that the interviewer asked.
Here's the interview. If you don't have time to watch it because you are too busy submitting offers in multiple-offer negotiations, I get that, and I wish we all had that problem.
If you stop reading this after watching the interview, I understand that, too: everyone wants things to (continue to) get better. While more sales at higher prices is better for a salesperson's wallet, there are larger questions that affect whether the predictions will come to pass, and where and for how many of us they will come to pass.
Prices to Skyrocket if Rates Stay Low for Two Years
As the video demonstrates, the media is encouraging the rest of the country to get in line with the hot-market mentality, but even the responsible question asked in the interview only gets the half-answer that "3.5% cuts across all markets." The problem is, if it did, it already would.
Linda, who wrote the blog post in the link above, writes that all that's holding back skyrocketing prices is buyer's ability to pay. That's a doozie! It's a heck of a limitation.
3.5% interest rates are creating an asymmetrical reflating of the housing bubble. Rather than one huge bubble, we're seeing micro-bubbles in many of the major metro housing markets along both coasts and in Texas and Arizona. Texas actually has the new jobs to support its boom.
What 3.5% is really doing right now - in most of the country except the major metro markets - is supporting home prices at their current levels. Home prices might be 20-25% lower in many markets if interest rates were now at 4.5%.
I'm all for an economic boom in this country. I'd love to see real growth at 4-5% annually. Absent real, sustainable job and wage growth to go along with that, how are home buyers supposed to pay more for housing?
10-25% increases in home prices from the 50% depressed levels of the past few years doesn't make up for the losses. Is that a skyrocket? Small groups of all-cash investors in Arizona and California can't sustain a buying hysteria among the general public. But most of all . . .
An asymmetrical housing boom, where micro-bubbles pop up in major metro housing markets across the coasts and Texas isn't the kind of foundation on which this country can build the kind of sustainable economic boom that will raise the tide for all boats.
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